Hindalco NEUTRAL. Performance highlights CMP. `112 Target Price - 1QFY2013 Result Update Base Metals. Investment Period -

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1 1QFY213 Result Update Base Metals August 21, 212 Hindalco Performance highlights Standalone (` cr) 1QFY13 1QFY12 % chg (yoy) 4QFY12 % chg (qoq) Net sales 5,964 5,979 (.2) 7,563 (21.1) EBITDA (46.6) 865 (46.4) % margin (674)bp 11.4 (367)bp Adj. PAT (34.1) 64 (33.6) Disappointing 1QFY213 standalone results: Hindalco Industries (Hindalco) s standalone net sales remained flat at `5,964cr (below our estimate of `7,265cr) mainly on account of lower aluminium and copper production during the quarter. Hindalco s standalone EBITDA decreased by 46.6% yoy to `463cr. The net profit also decreased by 34.1% yoy to `425cr (below our estimate of `58cr). Novelis (US $mn) 1QFY13 1QFY12 % chg (yoy) 4QFY12 % chg (qoq) Net Sales 2,55 3,113 (18.1) 2,68 (2.2) EBITDA (21.5) % margin (4)bp 9. 2bp Adj. PAT (17) - Novelis performance- A mix bag: For 1QFY213 Novelis posted an 18.1% yoy decline in net sales due to a decline in both volumes and realizations. The EBITDA also fell by 21.5% yoy to $234mn. However; Novelis net profit grew by 46.8% yoy to $91mn due to higher other income and lower taxes. Outlook and valuation: Although Hindalco is expanding its capacities three-fold over the coming four-five years, low aluminium prices, rising costs and delay in commencement of mining from captive blocks are expected to mute its profitability growth. In the near-term, there is lack of clarity over production from Mahan coal block for its upcoming Mahan smelter. Without a captive coal block, the Mahan smelter (expected to commission in 2HCY212) is expected to face cost pressures, resulting in lower return ratios over the next two years. Moreover, we do not rule out delays in upcoming projects. We maintain our Neutral view on the stock. NEUTRAL CMP `112 Target Price - Investment Period - Stock Info Sector Base Metals Market Cap (` cr) Net Debt (` cr) 21,51 37,563 Beta 52 Week High / Low /15 Avg. Daily Volume 1,33,141 Face Value (`) BSE Sensex Nifty Reuters Code 1 17,885 5,421 HALC.BO Bloomberg Code HNDL@IN Shareholding Pattern (%) Promoters 32.1 MF / Banks / Indian Fls 15.2 FII / NRIs / OCBs 26.4 Indian Public / Others 26.3 Abs. (%) 3m 1yr 3yr Sensex Hindalco 1.8 (22.1) 7.9 Key financials (Consolidated) Y/E March (` cr) FY211 FY212 FY213E FY214E Net sales 72,22 8,821 84,855 92,446 % chg Net profit 2,456 3,397 2,529 3,17 % chg (37.4) 38.3 (25.5) 22.8 EPS (`) EBITDA margin (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) Bhavesh Chauhan Tel: Ext: 6821 bhaveshu.chauhan@angelbroking.com Vinay Rachh Tel: Ext: 6841 vinay.rachh@angelbroking.com Please refer to important disclosures at the end of this report 1

2 Exhibit 1: 1QFY213 performance (Standalone) (` cr) 1QFY13 1QFY12 yoy % 4QFY12 qoq % FY12 FY11 yoy % Net sales 5,964 5,979 (.2) 7,563 (21.1) 26,353 23, Raw material 3,895 3, ,316 (26.7) 17,651 15, % of net sales Power and fuel ,871 2, % of net sales Staff cost ,113 1,4 7. % of net sales Other expenses ,866 1, % of net sales Total expenditure 5,565 5, ,782 (18.) 23,51 2, % of net sales Operating Income (23.8) EBIDTA (46.6) 865 (46.4) 3,95 3,155 (1.9) % of net sales Interest Depreciation (2.8) (.9) Other income Exceptional Items Profit before tax (36.2) 779 (34.2) 2,736 2, % of net sales Provision for tax (44.7) 139 (37.) % of PBT Profit after tax (34.1) 64 (33.6) 2,237 2, Exhibit 2: Standalone 1QFY213 Actual vs. Angel estimates (` cr) Actual Estimate Variation (%) Net sales 5,964 7,265 (17.9) EBITDA (29.9) EBITDA margin (%) (133)bp Adj. net income (16.4) August 21, 212 2

3 Hindalco (Standalone) Key result highlights Hindalco s standalone net sales remained flat at `5,964cr (below our estimate of `7,265cr) mainly on account of lower aluminium and copper production. Copper cathode and DAP production declined by 5.5% and 4.4% yoy to 69kt and 28kt, respectively due to maintenance shutdown. Alumina production remained flat yoy and stood at 335kt whereas aluminium metal production declined 5.7% yoy to 132kt due to some grid issues at its smelters and draught issues at its alumina refinery in Muri. Exhibit 3: Aluminium Quarterly production trend (tonne) 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 yoy % qoq % Alumina 334, , ,86 345, 335,.1 (2.9) Aluminium metal 14, , , , 132, (6.) (8.3) The EBIT of the aluminium segment decreased by 54.9% yoy to `27cr due to decrease in realizations and lower product premiums coupled with increase in input costs (mainly coal and crude derivatives). The EBIT of the copper segment also fell by 47.8% yoy to `76cr due to lower production, and lower by-product sales realizations. Exhibit 4: Segmental performance (` cr) 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 yoy % qoq % Aluminium 2,93 2,213 2,236 2,499 2,63 (1.5) (17.5) Copper 3,94 4,62 4,418 5,154 3,972.8 (22.9) Gross revenue 6,33 6,275 6,654 7,653 6,35. (21.1) Less: Inter-seg. revenue (2) (3) (7) (6) (7) - - Net sales 6,31 6,272 6,647 7,647 6,28 (.) (21.2) Aluminium (54.9) (44.2) Copper (47.8) (74.2) EBIT (53.5) (55.5) EBIT margin (%) Aluminium Copper Overall, Hindalco s standalone EBITDA decreased by 46.6% yoy to `463cr and EBITDA margin slipped 674bp yoy to 7.8% during 1QFY213. Interest expenses grew by 22.1% yoy to `81cr while other income grew by 69.4% yoy to `31cr due to higher dividend income from group companies. Consequently, the net profit decreased by 34.1% yoy to `425cr (below our estimate of `58cr). August 21, 212 3

4 Exhibit 5: 1QFY213 performance (Novelis) (US $mn) 1QFY13 1QFY12 % yoy 4QFY12 % qoq FY12 FY11 % yoy Net revenue 2,55 3,113 (18.1) 2,68 (2.2) 11,63 1, Cost of goods sold 2,22 2,78 (18.7) 2,262 (2.7) 9,743 9, (% of Net Sales) Gross profit (14.1) ,32 1,35 (2.2) (% of Net Sales) Selling, General (% of Net Sales) Research (% of Net Sales) EBITDA (21.5) (4.5) EBITDA margin (%) Restructuring charges 5 19 (73.7) 29 (82.8) Depreciation (18.) 8 (8.8) (18.6) EBIT (17.9) (% of Net Sales) Other Income/(Expense) (48) - 41 (7) (685.7) Net Interest expense (3.9) Unrealized Gain Exceptional items - - (111) (111) (84) Profit before tax (18.8) (111) (49.4) (% of Net Sales) (4.3) Taxes (64.4) (4) (53.) (% of PBT) PAT (17) (47.7) (% of Net Sales) (4.1) Profit from associates Minority Interest Net Income (17) (45.7) Novelis- Key result highlights: For 1QFY213 Novelis posted an 18.1% yoy decline in net sales due to decline in both volumes and realizations. Total shipments during the quarter declined 6.1% yoy to.75mn tonne. On the operating front the EBITDA fell by 21.5% yoy to $234mn, in line with the fall in net sales. Margins slipped by 4bp to 9.2%. The other income for Novelis increased by 19.% yoy to $25mn. This coupled with lower taxes (down 64.4% yoy to $21mn) helped Novelis to post a healthy net profit of $91mn compared to a loss of $17mn in 4QFY212 and a net profit of $62mn in 1QFY212. August 21, 212 4

5 Exhibit 6: Novelis EBITDA margin stood at 9.2% (US $ mn) (%) QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 Adj. EBITDA (LHS) Adj. EBITDA margin (RHS) Exhibit 7: Adjusted Net Profit stood at $91mn (US $ mn) (5) (1) (15) 62 2QFY11 3QFY11 (46) 5 4QFY QFY QFY12 3QFY12 (12) 4QFY12 (17) 91 1QFY (2) (4) (%) Net profit (LHS) Net profit margin (RHS) August 21, 212 5

6 Investment rationale Aluminium capacity to increase three-fold in the next four years Hindalco aims to increase its aluminium capacity by almost three-fold in the next four years to 1.5mn tonne. Consequently, we expect production and sales volume to record a significant growth over FY Most of these new capacities will be backed by captive bauxite and coal mines; however, there is lack of clarity on production from the Mahan coal block on account of procedural delays being faced currently. Exhibit 8: Smelting capacity to scale up gradually Exhibit 9: Refining capacity to grow 3.x (ktpa) 1,8 1,6 1,4 1,2 1, Renukhoot Hirakood Mahan Aditya Jharkhand Total (ktpa) 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, Existing Utkal Aditya Total Novelis to expand its capacity Novelis has plans to increase its capacity by ~2% by FY214E. The capacity at its Pinda operations in Brazil is being increased by ~22kt by CY212, while the balance will be through debottlenecking (a 3-4% increase in capacity every year). Further, Novelis plans to invest US$4mn to expand its South Korean aluminum rolling and recycling operations by 1mtpa. We expect steady EBITDA of over US$9mn per year from Novelis, given its stable conversion business. Exhibit 1: Novelis to generate US$9bn annually 1,2 1, (US $ mn) (%) FY1 FY11 FY12 FY13E FY14E EBITDA EBITDA margin August 21, 212 6

7 Hindalco no longer a 1% proxy for aluminium prices Hindalco s stock has had a strong correlation with INR denominated LME aluminium s price over the past 22 years. However, over the past one year, this correlation has dropped significantly mainly on account of project delays. Further, with massive aluminium capacity expansion ahead, we believe the stock s performance will be determined by timely commencement of these projects, timely development of captive assets and the movement in spot aluminium prices. Hence, Hindalco will no longer be a 1% proxy on aluminium prices over the coming two - three years in our view. Outlook and valuation Although Hindalco is expanding its capacities three-fold over the coming four-five years, low aluminium prices, rising costs and delay in commencement of mining from captive blocks are expected to mute its profitability growth. In the near-term, there is lack of clarity over production from the Mahan coal block for its upcoming Mahan smelter. Without a captive coal block, Mahan smelter (expected to commission in 2HCY212) is expected to face cost pressures, resulting in lower return ratios over the next two years. Moreover, we do not rule out delays in upcoming projects. Hence, we maintain our Neutral view on the stock. Exhibit 11: SOTP valuation of Hindalco FY14 EBITDA (` cr) Multiple EV (` cr) Hindalco (Standalone) 2, ,39 CWIP 16,598*.6 9,959 Novelis 5, ,789 Total EV 5,56 Less: Net debt (FY14E) 3,859 Value of discount 2,76 Value per share 115 Source: Angel Research, Note: * stands for Book value Exhibit 12: EPS - Angel forecast vs consensus Year (`) Angel forecast Bloomberg consensus Variation (%) FY13E (13.4) FY14E (4.3) Source: Bloomberg, Angel Research August 21, 212 7

8 Exhibit 13: EV/EBITDA band 16, 14, 12, 1, (`cr) 8, 6, 4, 2, Jul-6 Mar-7 Nov-7 Jul-8 Mar-9 Nov-9 Jul-1 Mar-11 Nov-11 Jul-12 2x 5x 8x 11x 14x Source: Bloomberg, Angel Research Exhibit 14: P/E band (`) 1, Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 5x 15x 25x 35x Source: Bloomberg, Angel Research Exhibit 15: P/BV band (`) Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12.2x.7x 1.2x 1.7x Source: Bloomberg, Angel Research August 21, 212 8

9 Exhibit 16: Recommendation summary Companies CMP Target price Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%) (`) (`) (` cr) (%) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E Hindalco Neutral 21, Nalco Reduce 13,594 (8) Sterlite Neutral 38, Hind. Zinc Accum. 55, Company description Incorporated in 1958, Hindalco is one of the world's largest aluminium rolling companies and one of the biggest producers of primary aluminium in Asia. It is also into copper smelting and has one of the world s largest custom copper smelter at one location with a capacity of.5mn tonne (non-integrated). Its aluminium operations in India have a capacity of.5mn tonne with captive bauxite mines (reserves - 443mn tonne). During February 27, Hindalco acquired Novelis for US$6bn, making the combined entity the world's largest rolledaluminium producer. Novelis has a market share of ~17% in the global flat-rolled aluminium product market. August 21, 212 9

10 Profit & Loss Statement (Consolidated) Y/E March (` cr) FY29 FY21 FY211 FY212 FY213E FY214E Total operating income 65,836 6,882 72,22 8,821 85,16 92,72 % chg 9.7 (7.5) Total Expenditure 62,648 5,976 64,274 72,632 77,474 83,911 EBITDA 2,977 9,746 7,929 8,189 7,381 8,535 % chg (55.1) (18.6) 3.3 (9.9) 15.6 (% of Net Sales) Depreciation& Amortisation 3,38 2,784 2,759 2,87 2,672 3,136 EBIT (6) 6,962 5,169 5,32 4,79 5,399 % chg - - (25.8) 2.9 (11.5) 14.7 (% of Net Sales) (.1) Interest & other Charges 1,232 1,14 1,839 1,758 1,96 1,513 Other Income (% of PBT) (113.7) Share in profit of Associates Recurring PBT (65) 6,181 3,843 4,345 3,595 4,745 % chg (12.3) (1,121.7) (37.8) 13.1 (17.3) 32. Extraordinary Inc/(Expense) PBT (reported) (65) 6,181 3,843 4,345 3,595 4,745 Tax (954) 1, ,341 (% of PBT) PAT (reported) 349 4,352 2,879 3,559 2,684 3,44 Add: Share of earnings of asso. (35) (3) (57) Less: Minority interest (MI) 172 (424) (366) (211) (154) (297) Extraordinary Expense/(Inc.) PAT after MI (reported) 485 3,925 2,456 3,397 2,529 3,17 ADJ. PAT 422 3,91 2,456 3,397 2,529 3,17 % chg (82.) (37.2) 38.3 (25.5) 22.8 (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg (87.) 723. (37.2) 38.3 (25.5) 22.8 Note: Some of the figures from FY211 onwards are reclassified; hence not comparable with previous year numbers August 21, 212 1

11 Balance Sheet (Consolidated) Y/E March (` cr) FY29 FY21 FY211 FY212 FY213E FY214E SOURCES OF FUNDS Equity Share Capital Reserves & Surplus 15,684 21,353 28,832 31,179 33,439 36,278 Shareholders Funds 15,854 21,545 29,23 31,37 33,631 36,469 Share Warrants Minority Interest 1,287 1,737 2,217 1,79 1,863 2,16 Total Loans 28,31 23,999 29,366 4,859 44,359 47,859 Deferred Tax Liability 2,757 3,938 3,76 3,65 3,65 3,65 Other Long term liabilities ,46 1,46 1,46 Long Term provisions - - 4,241 5,289 5,289 5,289 Total Liabilities 48,27 51,219 69,21 84,833 9,748 97,383 APPLICATION OF FUNDS Gross Block 38,332 41,189 37,31 39,888 48,388 56,888 Less: Acc. Depreciation 1,87 16,622 13,567 15,654 18,326 21,462 Net Block 27,525 24,567 23,464 24,234 3,62 35,426 Capital Work-in-Progress 2,949 5,81 9,252 22,798 22,98 16,598 Goodwill 4,291 4,433 8,941 11,66 11,66 11,66 Investments 1,431 11,246 1,855 1,551 1,551 1,551 Long Term loans and adv ,597 3,754 3,754 3,754 Other Non-current assets Current Assets 19,271 23,188 26,896 28,158 28,28 36,37 Cash 2,192 2,195 2,54 3,296 1,224 6,99 Loans & Advances 1,827 3,117 1,722 2,158 1,692 1,844 Other 15,252 17,876 22,634 22,73 25,291 27,23 Current liabilities 16,26 18,17 15,66 16,57 15,832 16,891 Net Current Assets 3,11 5,172 11,236 11,588 12,375 19,146 Mis. Exp. not written off Total Assets 48,27 51,219 69,21 84,833 9,748 97,383 Note: Some of the figures from FY211 onwards are reclassified; hence not comparable with previous year numbers August 21,

12 Cash flow statement (Consolidated) Y/E March (` cr) FY29 FY21 FY211 FY212 FY213E FY214E Profit before tax (65) 6,181 3,843 4,345 3,595 4,745 Depreciation 3,38 2,784 2,759 2,87 2,672 3,136 Change in working capital 2,931 (598) (78) (932) (2,859) (1,5) Others 61 (2,799) 1,645 2, Direct taxes paid ,313 1, ,341 Cash flow from operations 4,581 4,932 6,226 7,69 2,497 5,535 (Inc.)/ Dec. in fixed assets (2,89) (4,171) (7,76) (14,253) (7,8) (3,) (Inc.)/ Dec. in investments 4,97 (1,614) (Inc.)/ Dec. in loans & adv Others (91) (348) (185) (524) - - Cash flow from investing 2,928 (5,437) (7,99) (12,512) (7,8) (3,) Issue of equity 5,62 2, Inc./(Dec.) in loans (9,195) (321) 3,738 9,91 3,5 3,5 Dividend paid Others 2,245 1,677 2,539 2, Cash flow from financing (6,731) ,237 3,231 3,231 Inc./(Dec.) in cash 778 (76) (18) 626 (2,72) 5,766 Opening cash bal. 1,45 2,263 2,164 2,166 3,296 1,224 Closing cash bal. 2,183 2,187 2,166 2,729 1,224 6,99 Note: Some of the figures from FY211 onwards are reclassified; hence not comparable with previous year numbers August 21,

13 Key ratios Y/E March FY29 FY21 FY211 FY212 FY213E FY214E Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book value DuPont analysis EBIT margin (.1) Tax retention ratio (%) Asset turnover (x) RoIC (Post-tax) Cost of debt (post tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (pre-tax) RoE Turnover ratios (x) Asset turnover (gross block) Inventory (days) Receivables (days) Payables (days) WC cycle (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest coverage Note: Some of the figures from FY211 onwards are reclassified; hence some ratios may not be comparable with previous year ratios August 21,

14 Research Team Tel: Website: DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement Hindalco 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors. Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%) August 21,